Enterprise Investment Scheme (EIS)

This scheme has been designed to help smaller unquoted companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.

Investors in an EIS should be entitled to:

30 per cent Income Tax relief (on investments up to £1m
per tax year) to be offset against Income Tax liabilities for
the year of assessment and/or the preceding year in which
the shares are issued. This is subject to holding the shares
for a minimum of three years and the investee company
continuing to qualify;

Capital Gains Tax deferral;

tax exempt capital gains upon disposal, subject to claiming
and continuing to qualifying for income tax relief;

potential for 100 per cent Inheritance Tax relief after two
years (provided funds remain invested at the time of death
in qualifying assets); and

loss relief on any holding that falls in value by more that
the amount of income tax relief received.

Seed Enterprise Investment Schemes (SEIS)

These were introduced by the government in 2012 to encourage investment in early stage companies with less than 25 employees and assets up to £200,000. The theory is that this offers such companies access to a source of funding which they may not otherwise have had access to.

Provided the underlying investments are held for at least three years, investors in SEIS should be entitled to:

50 per cent Income Tax relief (on investments up to
£100,000 per tax year) to be offset against Income Tax
liabilities for the year of assessment and/or the preceding
year in which the shared are issued. This is subject to
holding the shares for a minimum of three years and the
investee company continuing to qualify;

Capital Gains Tax reinvestment relief (on 50 per cent of
any realised gains reinvested) against gains in the current
or preceding year in which the shares are issued;

loss relief on any holding that falls in value by more that
the amount of income tax relief received;

100 per cent Inheritance Tax relief after two years
(provided funds remain invested at the time of death in
qualifying assets); and

tax-free growth (provided income tax relief has been given
and not withdrawn).

The £100,000 investment limit which applies for Income Tax relief also applies for reinvestment relief. The ‘carry-back’ facility applies for capital gains reinvestment relief as it does for Income Tax relief. You can make a total of £200,000 investment in one year by applying £100,000 against the current year and then carrying the remaining £100,000 to the previous year.

Dividend income from these schemes is taxable based on your marginal rate of Income Tax, so for tax efficiency these schemes usually invest in shares that do not pay dividend income.